The plan to abolish trailing commissions for mortgage brokers as recommended by the recent banking royal commission report has been dropped by Treasurer Josh Frydenberg.

“Following consultation with the mortgage broking industry and small lenders, the Coalition Government has decided not to prohibit trail commissions on new loans, but rather review their operation in three years’ time,” he wrote in a statement.

Mr Frydenberg said the review will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission and would also consider if upfront commissions would continue.

This was Josh Frydenberg's first full quarter as Treasurer. (AAP)

“Mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market. Almost 60 per cent of residential mortgages are settled by mortgage brokers,” the statement read.

“There are 16,000 mortgage brokers across Australia – many of which are small business – employing more than 27,000 people. The Government wants to see more mortgage brokers – not less.”

Frydenberg highlighted ASIC’s 2017 review of mortgage broking remuneration, which did not identify trail commissions as directly leading to poor consumer outcomes.

He added the Government will introduce several new measures which “address conflicts of interest in the industry by better aligning the interest of consumers and mortgage brokers”.

“Only the Government can be trusted to protect the mortgage broking sector and ensure that competition is strengthen so consumers get a better deal,” the statement read.

New measures the Government has already announced include:

· The best interests duty that will legally obligate mortgage brokers to act in the best interest of consumers

· A new requirement that the value of upfront commissions be lined to the amount drawn-down by borrowers